Merck subsidiary pays £12m over price-fixing claims in sales to NHS

A British subsidiary of German drugs firm Merck has reached a £12m out-of-court settlement with the Department of Health over claims that it played a role in an alleged price and supply fixing cartel, which forced the NHS to overpay for some of its most commonly prescribed medicines.

Generics UK was alleged to have taken part in cartel conspiracies in relation to a class of penicillin antibiotics and to a generic version of best-selling ulcer treatment Zantac.

The settlement comes three months after Indian drugs firm Ranbaxy reached a similar settlement with the Department of Health. In both cases, there was no admission of liability and a pledge to co-operate in lawsuits brought against the remaining alleged cartel participants.

Both settlements are thought to cover any similar claims the department might file with the courts in the future relating to the same period in the late 1990s.

During that period, a handful of companies that dominated the supply of vital med icines - NHS fraud investigators believe it could be more than 30 separate drugs - are said to have conspired to limit supply, exploiting a loophole in NHS drug-buying procedures. The NHS was forced to put the products on an emergency procurement list and pay inflated prices.

The NHS has so far filed claims in relation to just three drugs, seeking damages of more than £150m.

The Serious Fraud Office is conducting a parallel investigation into the price-fixing allegations but has limited its inquiries to the supply of two products - blood-thinning pill warfarin and penicillin-based antibiotics.

Homes and offices of executives at six firms, including Ranbaxy and Generics UK, were raided by the SFO in May 2002. The other firms raided were Norton Healthcare, Goldshiel and Regent-GM.

· The Department of Health has reached an agreement with the generic drugs industry over a new method of pricing medicines. Health minister Jane Kennedy said that the new arrangements would save the NHS about £300m a year.